Hedge Fund Investor Considering Making Smaller Contribution

An affiliate of
Bruce Berkowitz
's hedge fund has passed on contributing up to $100 million to a short-term loan to help get
Sears Holdings Corp.
through its holiday season.

The fund is considering making a substantially smaller contribution, Mr. Berkowitz disclosed in a regulatory filing Thursday.

Cash-strapped Sears said earlier in September that it had agreed to borrow $400 million from the hedge fund run by
Edward Lampert,
the company's chief executive, chairman and biggest shareholder.

The forgone contribution won't impact Sears, which has already received the first $200 million of the loan. The remaining $200 million is expected to be funded on Sept. 30, according to a regulatory filing.

St. Joe Co.
JOE 1.77%
, a Florida-based real-estate developer affiliated with Mr. Berkowitz's Fairholme Capital Management LLC, had been in talks to participate in the loan but ultimately wasn't able to agree on terms for the investment, according to the filing. Mr. Berkowitz and his funds own 24% of Sears, according to the filing.

Sears has been selling off assets to raise money as its operations continue to produce red ink. But even if those sales go as planned, credit analysts say, the company could find itself short of funds by the end of 2016.

Mr. Lampert's ESL Investments Inc. has made short-term loans to Sears in the past by buying the company's commercial paper, but those loans were unsecured.

This time the loan—which will come due in just over three months and is aimed at helping the company get through the holidays—is backed by more than 20 Sears properties.

Sears shares closed down nearly 3% Thursday and have fallen about 35% this year.